If you own a condo in California, it is certain that you are not covered against damage caused by an earthquake (“EQ”). EQ damage is usually an excluded peril under HO-6 and similar condo policies. EQ cover is required to be offered, but only around 15% of apartment owners choose to pay an extra premium to cover this risk despite reports1 that within the next 30 years there is (1) over a 99% chance that one or more M6.7 or higher EQs will strike somewhere in California; (2) a 75% chance of one or more M7.0 or higher EQs hitting Southern California; and (3) a 76% chance that one or more M7.0 or higher EQs will hit Northern California.
The California Earthquake Authority (“CEA”
😉 is the largest seller of residential EQ insurance in the state. If you are offered insurance, it is more likely than not a CEA form (BEQ-6B) offered through a participating home insurance company (such as Allstate, AAA, Farmers or Nationwide). But beware – A CEA policy doesn’t just add EQ coverage as a covered peril; it only provides limited coverage and likely works differently than your primary “companion” condo policy. In fact, your companion, who is required to provide fire insurance for the property, must is issued by the same company that issues the CEA policy and must be in effect, or the CEA policy is void.Other terms are also very different from a companion policy, so be sure to read the entire policy. For starters, CEA condo policies provide optional coverage groups that can be mixed and matched, each with their own deductible requirements depending on your choice. The deductible amount per coverage, expressed as a percentage of each coverage limit, must be met for each individual coverage. For example, if your building property deductible is $10,000 and your personal property deductible is $5,000, you will not be paid for your personal property unless more than $5,000 of the covered personal property was damaged despite building property damage of 50 000 USD.
Below highlights some of the coverages and limitations provided and provisions you should be aware of in a CEA policy:2
Coverage A – Building property
To determine if the property is covered by your CEA policy, two important documents must be reviewed:
- Association governing documents – to determine whether you have an obligation to repair or maintain the property; and
- The association’s main policy – to determine whether it covers your property for the risk of EQ
Two basic categories of properties are covered by a CEA apartment policy. The first is property that is part of the structure and that is part of the dwelling (such as built-ins, fixtures, alterations and improvements), wall-to-wall interior carpeting, and real property that pertains exclusively to that unit (other than chimneys). The second category is covered only if the insured has an obligation under the governing documents to maintain the property and includes plumbing pipes and utilities enclosed in walls, ceilings or floors, as well as equipment and service structures outside the perimeter walls but within the development of the common interest, and finally , chimneys up to $10,000.
CEA condo policies also provide an additional $1,500 for emergency services and an additional 5% for trash removal. Payments under this policy are limited by the insurable interest rate and whether benefits are available under an association’s main policy. You will notice below that the limit options available may not allow you to insure against value.
Limit Amounts Available: $25,000; $50,000; $75,000; 100,000 USD
Policy excess Options: 5%; 10%; 15%; 20%; 25%
Coverage C – Personal Property
Adjustment under this coverage shares similarities with your companion [fire] policy. However, remember that the separate deductible applies. Furthermore, and perhaps contrary to expectations, broken items are excluded under this cover but can be added by endorsement (CEA 04A 01-2016). Breakable items include glassware, crystal, china, ceramics, pottery and serving china, as well as figurines, vessels, cases and other decorative items.
Limits available: $5,000; $25,000; $50,000; $75,000; $100,000; $150,000; $200,000
Policy excess Options: 5%; 10%; 15%; 20%; 25%
Coverage D – Loss of Use
CEA apartment insurance offers coverage for loss of use and loss of rent. In most CEA policies, your individual residence must be considered “unfit to live in” for this coverage to be triggered. However, given the unique ownership nature of the apartments, benefits for loss of use are also payable even if the insured is forced to vacate their home due to EQ-related repairs to other units in the same development.
This coverage has no deductible.
Limit Amounts Available: $1,500; $10,000; $15,000; $25,000; $50,000; $75,000; 100,000 USD
Coverage E – Loss Assessments
CEA Condo Insurance offers loss assessment. A damage assessment is a requirement from an owner’s association that requires you to pay for damage to common property. Coverage E allows payment up to the stated limit for EQ-related damages not otherwise excluded.
In some situations, the homeowner’s association may choose not to repair the damaged property or may be prevented from repairing the property. The resulting decrease in fair market value may be covered if: (1) the home is unfit for habitation or cannot be lawfully used, and (2) the result of the decrease in value is not due to a non-covered loss.
Limit Amounts Available: $25,000; $50,000; $75,000; 100,000 USD
Building Code Upgrades
Building Code Upgrade Coverage is provided as additional insurance if Coverage A – Building Property is purchased; $10,000 in coverage is provided. Under Coverage E, building code upgrade coverage is also offered with a sublimit of $10,000.
Take-out
If your apartment is not currently insured against EQ, consider whether this coverage is right for you and, if so, ask your insurer with companions what options are available. If you are already insured, it may be worth reviewing your association’s master policy and association’s governing documents to better inform your decision about what insurance is needed and at what amounts. If you experience difficulty adjusting an EQ claim, contact an insurance professional who will represent your interests for assistance.
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1 Field, EH and 2014 Working Group on California Earthquake Probabilities, 2015, UCERF3: A New Earthquake Forecast for California’s Complex Fault System: US Geological Survey 2015–3009, 6 p., Available at: https://pubs.usgs.gov /fs/ 2015/3009/
2 You can find this information and more in the CEA 2021 Claim Manual located here: https://www.earthquakeauthority.com/EQA2/media/PDF/for-adjusters/2021-Claims-Manual.pdf. Sample policies are also available on the CEA website: https://www.earthquakeauthority.com/
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